Forget Europe – the markets hold the real unaccountable power

An unholy matrimony between finance and politics has undermined democracy: it's time it was reinforced

'We still have the tin-hatted Conservatives with no heart, their Lib Dem counterparts without the brains to realise they’re sealing their own fate, and a Labour party still lacking the courage to put up a real fight' … The Wizard of Oz at the West Yorkshire Playhouse. Photograph: Tristram Kenton

Listening to economics being discussed in the media is like being read a fairy story. In any fairy story you need a monster, and in this case it's "the markets": unseen, but seemingly all-powerful. Job losses, public service cuts, wage freezes, privatisation, even cuts to benefits for disabled people can be justified by saying "the markets" demand it.

But what are the markets? Who comprises them and why are they so powerful? I didn't vote for them and I doubt you did either – yet they apparently have the power to dictate policies to elected governments and, in the case of Italy, to even select the government.

This is not an abstract debate. If we are to understand the economic system we live under, what went wrong to cause the crash, and how we are to change it, we need to deal with facts, not myths. At the height of the crash the curtain was pulled back, Wizard of Oz-like, to reveal the markets as nothing more than a cabal of rich men serving their own interests.

Yet sadly, we still have the tin-hatted Conservatives with no heart, their Lib Dem counterparts without the brains to realise they're sealing their own fate, and a Labour party still lacking the courage to put up a real fight.

If people don't understand these things, they are susceptible to the argument that "there is no alternative" and that the medicine of austerity is unpalatable, but necessary.

Do you remember when in 2007 people queued outside hospitals desperate to remove their loved ones from the unsafe hands of doctors and nurses, or when in 2008 the entire public sector stood on the precipice due to the excessive greed of jobcentre workers and teachers?

No? Because it never happened. Yet the myth that the public sector caused the crash was allowed to develop, and the dangerous conclusion allowed to take root that hacking back the public sector would solve the crisis. It hasn't and it won't – as even the IMF is beginning to realise.

The myth-making, the diversionary tactics, the crash and our failure to recover from it is the story of how the finance sector came to be lauded by all major political parties.

But it also had another effect, to undermine democracy. The unholy matrimony between finance and politics jettisoned public interest in three key ways:

Firstly, deregulation. Successive governments created markets for the finance sector by removing restrictions on what the sector could do. By the crash, the regulators barely understood the complex structures they were supposed to be regulating.

Secondly, it redistributed wealth to the rich. Through slashing corporation tax and the higher rate of income tax, the super-rich grabbed an even larger share of the national wealth. This meant more wealth accumulated to fewer and fewer people. Instead of funding public services – starved of cash during the Thatcher years – more of British capital poured into the City of London.

The third and final element was privatisation. Entire industries – from the railways and telecommunications, to gas, electricity and water – were taken out of collective public ownership. This transferred power over them from the ballot to the wallets of a few, the directors and shareholders who have extracted billions from them.

This week David Cameron made a speech about the need to repatriate powers from Europe. Sections of the press and Ukip leader Nigel Farage rant incessantly about the alleged influence of Brussels over our lives, but that pales into insignificance compared to the unaccountable power of the large financial institutions.

So a few vocal Little Englanders have forced the prime minister to respond to their agenda. When what we really need is to assert our democracy over the tyranny of the markets, in the interests of the many.